Matt Paff on the year that was: Succession, growth & acquisition

Editor’s note: To mark the end of 2018, we wanted to get your thoughts on the year that was. So we’ve asked some of the most influential voices in accounting, bookkeeping and technology to share their view of the past 12 months. Today, we hear from Matt Paff, noted commentator on the accounting-software industry and founder of Value Adders.

By Matt Paff, Value Adders

It’s that time of year in Australia once more. The Melbourne Cup is over and the Christmas party season is in full swing. Christmas beetles are appearing. The cicada crescendo has begun. As the weather warms up, businesses (outside of hospitality) are starting to wind down for the year.

It’s a great opportunity to make time for reflection on the year that was. What did we learn and how does that influence the year ahead?

Well, Australia has a new prime minister in a non-election year. New Zealand retains a highly popular PM. Brexit is proving difficult and Trump continues to polarise and tweet. In politics, what did we learn? Not much.

But what about the SME technology industry? A lot happened in 2018.

The year of CEO succession

In March, Xero announced that its visionary founder, Rod Drury, was stepping down and being replaced by former IBM, Apple and Microsoft exec, Steve Vamos.

In early August, Intuit’s CEO of the past 11 years, Brad Smith, announced he would be succeeded at year’s end by the executive vice-president of the small business division, Sasan Goodarzi.

By late August, Sage CEO Stephen Kelly was ousted and ultimately replaced by his CFO Steve Hare in November.

All this change reflects a maturing industry, heading into its next phase.

Cloud accounting adoption grows

2018 saw accelerated adoption of cloud accounting across the globe, with the share prices of both key players, Xero and Intuit, hitting all-time highs.

Xero announced 1.57 million subscribers as at the end of September. And more recently (December) Xero surpassed 1 million subscribers across Australia and New Zealand, clearly showing it to be the market leader for subscribers in the cloud and in fact, the broader retail accounting systems sector.

The US remains a QuickBooks stronghold, with Intuit (as of the end of October) having 2.7 million of its 3.58 million subscribers on its cloud platforms in the US.

The UK remains an interesting battleground ahead of the introduction of Making Tax Digital, with Xero claiming the market leadership position with 355,000 subscriptions at the end of September, and Intuit reporting 305,000 at the end of July, both eclipsing the market incumbent, Sage.

The death knell for desktop down under?

Before Xero, the most popular retail accounting technology across Australia and New Zealand was one whose code-base can be traced back to US company Teleware in 1982. That was MYOB AccountRight – most recently suffixed with v19 and/or Classic to distinguish it from the hybrid cloud offering with the same name.

2018 saw MYOB discontinue development of this ‘legacy’ product by not adding Single Touch Payroll compliance and then announcing that all support would cease as of September 30, 2019.

To this day, hundreds of thousands of organisations continue to use AccountRight Classic. MYOB’s announcement has had a significant impact on the transition to cloud accounting across Australia and New Zealand in the latter half of 2018, and this will presumably grow as we move into 2019.

Practice management software sector in flux

In May, MYOB withdrew from its deal to acquire the practice management division of Reckon, leaving customers (on both sides, but particularly Reckon clients), confused and unsure about the future of their primarily desktop applications.

In June, start-up practice management player Karbon announced an AU$7 million capital raise.

In September, as an announcement of their arrival in Australia, former South African Sol6

distributors and now cloud practice management vendor Greatsoft, appointed APS co-founder Brian Armstrong to the role of MD, based here.

Australian workforce tech attracts massive attention

In March, EmploymentHero announced an AU$8 million capital raise.

In August, FlareHR announced an AU$21 million raise.

In November, Deputy dwarfed all others, with an AU$111 million raise, reported as the largest series B funding in the history of Australian start-ups.

Was 2018 the start of an acquisition frenzy?

In early 2018 Intuit’s acquisition of TSheets was completed for US$340 million, which Intuit then followed up with the purchase of DevOps vendor Applatix for an undisclosed sum.

In August, Xero announced the acquisition of Canadian data-capture company Hubdoc for US$70 million.

Shortly afterwards, Xero announced a US$300m convertible note raise on the Singapore Exchange, with the purpose of funding strategic acquisitions.

In November, Xero announced the acquisition of UK company-filing and tax-technology vendor Instafile for 5.25 million pounds.

As technology companies evolve and grow, and the markets in which they operate mature, acquisitions are a logical means of speeding up product innovation and growth.

It would seem an obvious prediction for 2019 that Intuit under new CEO Goodarzi, and Xero under Vamos – who still has most of the US$300m left to spend – will both be making acquisitions. Who’s next? Receipt Bank? KeyPay? Spotlight? My money is on Fathom… #WatchThisSpace

Matt Paff (BBus GAICD) is the founder of the Australian consulting firm Value Adders and writes a blog on key accounting technology industry players, events and trends. Value Adders provides research and strategic consulting services to technology vendors, accounting firms and other professional service providers, particularly on accounting industry trends and strategy. Matt is also a director of foreign-worker-compliance technology start-up vSure.

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This article reflects the author’s views, which should not be taken as the opinions of Xero nor as taxation, financial, investment or legal advice. Xero recommends that readers always obtain specific and detailed professional advice about any business decisions.